JOHANNESBURG – While the introduction of some form of tax hikes seems imminent, any potential increases would have to be carefully considered and introduced.
Government is under pressure to raise more revenue in a tough economic environment, but any potential tax hikes would likely be highly controversial if measures to address corruption and wastage do not bear fruit.
In his medium-term budget policy statement, finance minister Nhlanhla Nene, indicated that “efforts to improve value for each rand spent will include strengthened measures to identify, prevent and combat corruption in both the public and private sectors”.
While investigations by government’s anti-corruption task team has led to R1.8 million in assets frozen and R105 million in assets forfeited by September this year, amounts like these are relatively small compared to the revised expenditure estimate of R1 136.3 billion for 2014/2015.
But could the introduction of tax hikes without accompanying measures to address corruption and wastage in the system result in compliance problems?
Kyle Mandy, head of tax technical at PwC, says the perception is that National Treasury and the South African Revenue Service (Sars) are well aware of the risks of potential taxpayer revolt.
“We’ve seen it with e-tolls. If they weren’t aware of it before e-tolls, they’re certainly aware of it now,” he says.
Yet large-scale revolt and non-compliance is unlikely.
Andrew Wellsted, head of tax at Norton Rose Fulbright, says while any tax increase would be controversial given the state of the economy and the pressure on the tax base, refusing to pay taxes (of whatever nature) has clear compliance risks.
“Firstly, Sars is (correctly) perceived as an organised and efficient regulator, and is likely to rapidly follow up on any delinquent taxpayers.
“Secondly, the courts are unlikely to be sympathetic towards taxpayers not paying tax on this basis given the consequences of the fisc being unable to collect taxes efficiently,” Wellsted says.
He says while there are obvious parallels between taxes and the e-tolls, acceptance of the obligation to pay tax is far more entrenched in society than the need to pay relatively novel road charges where the issues are questions about the formulation of those charges, and the ability to effectively collect the charge.
Yet any tax increases should be the last resort, says Mandy.
Other measures should be taken first including reducing inefficient and wasteful expenditure. South Africa should also consider if it is collecting all the taxes that legally should be collected.
“I think there is still a significant tax gap in this country,” Mandy says.
There is a relatively small tax gap as far as corporate income tax is concerned. To a large extent Sars has done an excellent job in the last decade of closing the tax gap in the corporate sector, Mandy says.
“So that low hanging fruit has been plucked.”
The gap now lies in small and medium business, particularly closely held businesses like family-owned enterprises as well as in the cash economy, he says.
Another area where tax gaps are present is domestic and foreign trusts.
Mandy says the information insofar as the registration of trusts are concerned is a mess.
Sars is taking steps to address the offshore sector in particular as part of the global process around the automatic exchange of information, but this is only really going to come on board in 2017.
“We can’t afford to wait until then in terms of getting those tax revenues that we need to get,” he says.